U.S. carmakers hit with Chinese tariffs as trade war changes gear

This story is being published for POLITICO as part of a content partnership with the South China Morning Post. It originally appeared on scmp.com on Aug. 9, 2018. The updated tariff list, published by the Ministry of Finance on Wednesday, will slap 25 percent duties on 333 products instead of the initial 114 identified in mid-June, keeping the total value of the goods unchanged. The new list removed some imports, including crude oil, from the crossfire. Instead, a vast array of vehicles, scraps and recyclables, petrochemicals, and medical equipment were added to the list, in a move that analysts say will inflict more pain. The latest measures were a tit-for-tat response to U.S. tariffs on $16 billion of Chinese goods that were finalized by Washington on Tuesday, with both sides ready to impose the new duties on Aug. 23 in a further intensification of the bitter trade war between the world’s largest economies. Last year, the total worth of U.S. exports to China in passenger cars, trucks and vehicles, and various auto and engine parts reached over $13.9 billion. For the Chinese side, swapping out items on its final tariff list reflects its desire to reduce the impact to its own economy while putting more pressure on President Donald Trump, who will face critical midterm elections in November. While some observers said China may have removed crude oil because of energy security concerns, others said it would not have a significant impact whether or not it was on the list. China was the second-largest market for U.S. crude oil last year, but that represented only around 2 percent of China’s total imports of the product, said Lin Chen, an energy analyst for Japanese financial services firm Nomura. “China has many alternative countries to import from,” he said. “It’s definitely not significant to China.” Iris Pang, chief economist for China at ING Bank, said putting tariffs on automobiles would have a bigger impact for the U.S., with its car market facing serious competition from Europe. “[The new list] could have more impact than the previous list, because it could also affect the labour market of the auto sector in the U.S.,” Pang said. Besides passenger cars, minibuses and trucks, the new 25 per cent duties would be imposed on engines and vehicle motors, motorcycles and bicycles, trailers, wheels and even prams. “The auto sector is a pretty important and strategic industry, for which it is easy to create a market reaction,” said Sophie Shen, a Shanghai-based analyst for PwC. “In the short term, the overall impact will not be very large ... but in the medium and long term, U.S. automakers such as Ford, which are already struggling in the China market, will find it even harder to rebound.” Another key addition to Beijing’s latest tariff list was scrap metals and waste. U.S. scrap exporters were also rocked by the Chinese government’s decision to restrict shipments of waste and recyclables, with an import ban on waste products slated by the end of 2019. The U.S. exported around $5.6 billion worth of various types of scrap waste to China last year. But although China was strategic in targeting products, analysts said officials were probably focused more on minimizing the damage to their country’s own economy, which has already felt the bite from existing tariffs. Beijing has found itself with limited options for follow-up trade measures because of the bilateral trade imbalance, using a range of duties in its threatened tariffs on the next $60 billion worth of U.S. goods to counter the U.S.’ proposed tariffs on another $200 billion of Chinese goods. “I have a sense that the U.S. thinks this kind of tariff and expected retaliation would not hurt the U.S. and is a zero-sum game, which is not true,” said Pang, from ING. “The remaining $60 billion is what China has on the table, and the next very important question is not about tariffs any more, but what kind of qualitative measures China would use — for example, the number of tourists leaving China for the U.S.” source: https://www.politico.com/story/2018/08/09/us-carmakers-chinese-tariffs-728911 #Headlines by: Sarah Zheng | South China Morning Post

Original Post: https://www.politico.com/story/2018/08/09/us-carmakers-chinese-tariffs-728911